Those curious if the Indian Rupee cratered once again in overnight trading will be disappointed: following the previously reported intervention [25]by the RBI in which it would provide US dollars only to crude companies, the currency rose strongly at the open only to fade and trade rangebound before closing in the mid 67 range. In other words, much more will be needed by the central bank to stabilize the currency, the markets and the economy. The main overnight story, however, remains the Syrian conflict and market reactions to it. Stocks traded higher in Europe early today, with credit spreads tightening as market participants scaled back expectations of an imminent strike on Syria after US Defense Secretary Hagel said that the US will act on Syria only with international collaboration. Of note, the G-20 is set to take place next week where Syria is widely expected to be the hot topic for discussion among global world leaders. But while futures ramped in early trade following a spike in the USDJPY over 98, they have since retraced most of their upside, and crude is back to nearly unchanged.
Elsewhere, the Italian Treasury sold EUR 6.0bln, in line with the aim, in 3.5% 2018 and 4.5% 2024 BTPs this morning. The offering benefited from a combination of pre-auction concession related flow, as well as decent yield pick available on the 10y line. Germany reported a 6.8% unemployment rate as expected, however the unemployment change came in at +7K, on expectations of -5K and a deterioration from last month's -7K. This was the first rise in German unemployment in 3 months. The final Spanish Q2 GDP printed as expected at -0.1%, same as the preliminary.
On the US docket we have the latest weekly jobs report, as well as the revised Q2 GDP reading. The NY Fed will conduct its last POMO for August injecting between $1.25-$1.75 billion, and the Treasury will conclude this week’s planned auctions with a sale of USD 29bln in 7y notes.
Overnight news bulletin:
- Treasuries fall for a second day before week’s auctions conclude with $29b 7Y notes, yield 2.23% in WI trading; stopout yield at that level would be highest since July 2011.
- 5Y notes sold yesterday (designated a reopening of 7Y issued in Aug. 2011 based on its identical coupon and maturity) drew 1.624%, highest in over two years, and tailed 1pm level by 0.3bps, according to RBS
- The prospect of imminent military strikes on Syria receded as the U.K. and France said they favor waiting for the results of a United Nations investigation into alleged use of chemical weapons
- German unemployment rose by 7k to 2.95m in August, the first increase in three months
- China pledged to expand the packaging of loans into asset-backed securities to dissipate financial risks, part of efforts to increase the use of markets and sustain economic growth
- The U.S. and Switzerland agreed to resolve a long-running dispute over offshore tax evasion by letting some banks voluntarily disclose wrongdoing and turn over account information on American clients, a senior Justice Department official familiar with the matter said
- Sovereign yields mostly lower, EU peripheral spreads little changed. Euro Stoxx Banks -0.5%. JPY falls through 98 level. Nikkei +0.9%, leading most other Asian markets higher; Shanghai Composite -0.2%. European stocks, U.S. equity index-futures gain. WTI crude, gold, copper fall
Global headline recap from RanSquawk
Asian Headlines
BoJ Board Member Morimoto said the BoJ are ready to take necessary policy adjustments, taking into account risks to economy and prices at the time.
EU & UK Headlines
German Unemployment Change (000's) (Aug) M/M 7K vs. Exp. -5K (Prev. -7K)
German Unemployment Rate (Aug) M/M 6.8% vs. Exp. 6.8% (Prev. 6.8%)
A number of US hedge funds, including PIMCO, are interested in investing in Spain's semi-autonomous regions' debt, according to Spanish newspaper Expansion.
German finance minister Schaeuble said EUR 10bln - EUR 11bln in new Greek aid 'appears plausible.' Said he rejects grand coalition with Steinbrueck's SPD and retroactive bank recaps could quickly drain ESM.
The Italian Treasury sold EUR 6.0bln, in line with the aim, in 3.5% 2018 and 4.5% 2024 BTPs this morning.
The offering benefited from a combination of pre-auction concession related flow, as well as decent yield pick available on the 10y line.
- Sells EUR 3.5bln in 3.5% 2018, b/c 1.22 (Prev. 1.36) and avg. yield 3.38% (Prev. 3.22%)
- Sells EUR 2.5bln in 4.5% 2024, b/c 1.52 (Prev. 1.32) and avg. yield 4.46% (Prev. 4.46%)
Barclays prelim month-end extensions Euro agg at +0.03yrs
Barclays prelim month-end extensions UK Gilts +0.07yrs
US Headlines
White House deliberations over Bernanke's successor are entering the final stages with Fed's Yellen downplaying her chances of becoming the Fed chair, according to sources.
Barclays prelim month-end extensions for US Treasuries at +0.11yrs.
Equities
Stocks traded higher in Europe today, with credit spreads tightening as market participants scaled back expectations of an imminent strike on Syria after US Defense Secretary Hagel said that the US will act on Syria only with international collaboration.
The move higher was led by telecommunications sector, with Vodafone trading up around 10%, following reports that Verizon Communications is said to be in advanced talks to acquire Vodafone’s 45% stake in their Verizon Wireless venture for about USD 130bln. On the other hand, given the slide in energy prices, with WTI and Brent trading lower by over USD 1.00, meant that oil & gas sector related stocks underperformed.
FX
Even though risk averse sentiment abated, the USD remained bid and was instead driven by higher rates, with USTs trading lower ahead of the 7y note auction and on the back on firmer equity futures. As a result, GBP/USD traded lower today, testing the 21 and the 200DMA levels at 1.5508 and 1.5509 respectively in the process. Combination of interest rate differential flows supported USD/JPY, which trended higher overnight in Asia and during the European session this morning , with upside technical levels seen at the 50DMA line at 98.72 and also the 100DMA line at 98.94.
Brazil central bank raised the benchmark lending rate by 50bps to 9.00%.
Bank of Indonesia raised its benchmark interest rate by 50bps to 7.00%.
Commodities
US President Obama said he's received options from the Pentagon and that he hasn't made a decision on Syria action.
- US Defense Secretary Hagel says US will act on Syria only with international collaboration.
- German Chancellor Merkel and UK PM David Cameron agreed Syria cannot go unpunished according to a German government statement.
- According to reports, Chancellor Merkel and PM Cameron hope the UN security council will agree on consequences for Syria. UK PM Cameron said motion won't authorize military action and another vote of Parliament needed for military action.
- Russia to dispatch anti-submarine ship, cruiser to Med Sea according to IFX.
According to UBS attacks on Gulf oil producers could see Brent spike to USD 130-150/bbl. A possible US intervention is likely already priced in, if the intervention comes it can be expected that markets will hold their breath until it emerges what the response is as those wishing to retaliate may attack oil facilities in Iraq or Saudi Arabia.
NOC measurement head Ibrahim Al Awami says oil production stopped at most Libya's onshore fields and Libyan oil output remains at 200,000bpd today.
Negotiator for the South African Chamber of Mines says final revised offer needs to be accepted by all 4 unions in gold mining industry and that unions have until midday to accept pay offer.